Illinois recently adopted the Illinois Religious Freedom Protection and Civil Union Act. Effective June 1 of this year, the act requires that individuals in Illinois who have entered into a covered civil union be treated in many situations as though they were married.
The precise scope and application of the act will require careful consideration by employers. For example, the act may be preempted by ERISA as to noninsured plans; employers with operations in multiple locations will have to determine how to modify their policies to cover their varying obligations.
Section 20 of the act provides:
A party to a civil union is entitled to the same legal obligations, responsibilities, protections and benefits as are afforded or recognized by the law of Illinois to spouses, whether they derive from statute, administrative rule, policy, common law or any other source of civil or criminal law.
The statute defines a civil union as a legal relationship between two individuals of either the same or opposite sex where the individuals are at least 18 years old, not currently married or involved in a nondissolved prior civil union and are not related to each other. If a civil union is recognized in another state it will also be recognized in Illinois. Individuals who are covered by the act will be referred to as domestic partners.
The act applies equally to heterosexual as well as same-sex couples. Couples will be covered if they have completed the act's licensing and certification procedures.
A growing percentage of employers currently provide some benefits to domestic partners of their employees. However, determining who will be covered had previously been left to the discretion of employers. For example, some employers extend coverage only to those individuals who have been in a committed domestic relationship for a specified period of time. The act will bring certainty to those employers situated only in Illinois who do not intend to provide benefits in excess of the new minimum legal requirements.
Employers may face difficult practical problems when their employees work in states that do not recognize domestic partnerships. Employers often prefer uniformity in their employment policies and in their fringe-benefit programs.
If uniformity is of paramount interest, employers may have to enhance their current approaches. This may also prove attractive to employers that transfer employees from one state to another. However, if uniformity does not trump all other concerns, employers will have to analyze and keep current with new legal developments in each location where they have employees.
Employers that wish to avoid the mandate because they have moral objections to same-sex marriages or civil unions will have no defense under the act. The result is less clear if the objection is based on religious grounds.
Section 15 of the act states: "nothing in this act shall interfere with or regulate the religious practice of any religious body." The phrase "religious body" may require judicial clarification. Is a hospital, school or social service agency that is affiliated with a church a "religious body"? The answer to this question may depend on the characteristics of each organization affiliated with a religious institution.
Employers should begin now to analyze how the act will affect them. They should identify each of their employment practices to determine which ones are required or affected by Illinois law. Employers will be subject to new legal requirements only where spousal rights are mandated under Illinois law and — with regard to benefit plans — only to the extent that those state law mandates are not preempted by ERISA.
Employers should analyze each of their employment policies to determine which ones will be affected by the act. For example, the Illinois Human Rights Act prohibits discrimination based on an individual's marital status and the scope of this statute should be extended to domestic partners. Leave policies should also be analyzed. Under Illinois law, the spouse of an employee entering military service is entitled to a leave of absence. This right should be extended to domestic partners.
The effect the act will have on employee benefit plans will depend upon a number of factors: Whether the plan is covered by ERISA and whether the plan is insured or not. ERISA contains a broad preemption provision that supersedes state laws that relate to covered plans. State insurance laws are not subject to this preemption provision and remain in effect. Covered plans include retirement and plans providing health, life and dental benefits.
The Supreme Court decided in Shaw v. Delta Air Lines, Inc., that ERISA does not preempt state discrimination laws to the extent they duplicate Title VII's protections. Because the act extends coverage to domestic partners who are not protected by federal law, the act should be preempted regarding noninsured benefit plans. Moreover, at least one court has held that Massachusetts' state law that extended benefits to domestic partners was preempted by ERISA.
This means that private-sector employers need not provide equivalent health benefits to domestic partners if these benefits are self-funded or funded through a trust. Nor do domestic partners have a right to survivor benefits under retirement plans. Employers may extend their preempted plans to cover domestic partners, but, as explained below, these employers need counsel as to the effect extending coverage will have under federal tax laws.
State insurance laws are not pre-empted by ERISA. For example, federal law (COBRA) does not require that domestic partners have a right to continuing health-care coverage after the employed domestic partner terminates employment, becomes disabled or dies. However, Illinois does extend health-care continuation rights to spouses if the health-care plan is insured. Under the act, this continuation right should be extended to domestic partners.
Employers should carefully consider the federal tax consequences of extending benefits to domestic partners. The federal Internal Revenue Code provides certain tax advantages to employees, spouses and dependents of covered employees who receive certain benefit coverages.
However, under the revenue code, unlike under the act, domestic partners have to pay income tax on the value of these benefits. Some employers have decided, on a voluntary basis, to provide a gross-up payment for domestic partners to cover the amount subject to income tax. Other employers may feel under increased pressure to follow suit.
In addition, some employers provide health-care benefits under a Voluntary Employees' Beneficiary Association (VEBA). VEBA's are noninsured programs that usually provide health care, severance and some death benefits. These plans may cover "employees," which is defined to include common-law employees, their spouses and dependents. Domestic partners are not spouses for this purpose but may — under specified circumstances — be covered dependents.
The IRS has taken the position that a VEBA will become disqualified if more than a de minimis amount of benefits is provided to nonemployees. For the same reason, employers should think twice before expanding VEBA coverage on a discretionary basis to dependent partners. However, employers should also note that a district court judge, in a different context, has held that the Internal Revenue Code's provision restricting certain tax advantages under a benefit plan only to married individuals, may be unconstitutional. Dragovich v. Dept. of the Treasury, No. 10-01564 CW (N.D. Cal., Jan. 18, 2011).
Notwithstanding the lack of clarity regarding certain situations, employers should begin to analyze how the act will affect the operation and administration of their employment policies and benefit plans. They should work with their legal and insurance advisers in order to make necessary modifications and then explain any changes to the affected individuals.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
